Free to Trade: What the India-UK FTA Really Means

The sweeping Indo-UK deal promises tariff cuts, tech collaboration and a shot at global trade leadership.

The past month has presented India with numerous challenges, from the turmoil surrounding Trump’s tariffs to escalating tensions with Pakistan. Yet, despite these adversities, India remains steadfast, demonstrating resilience in the face of uncertainty. In the first week of May, as the government strategized its response to the recent terrorist attack, a significant milestone in global trade was reached wherein India and the UK successfully finalized their Free Trade Agreement after three years of intense negotiations. The treaty now awaits approval by India’s Union Cabinet and ratification by the UK Parliament, with full implementation expected in about 15 months. In FY 24–25, bilateral merchandise trade between the two nations reached $21.3 billion. Indian exports today stand at $12.92 billion against $8.41 billion in imports. The agreement seeks to boost bilateral trade to $120 billion by 2030.

The FTA prioritizes phased tariff reductions, protection for sensitive sectors, improved mobility, social security exemptions for professionals, and limited government procurement liberalization. This gradual approach balances trade openness while minimizing disruptions for domestic industries.

India will gradually reduce tariffs on 90 percent of British goods, with 85 percent becoming duty-free over the next ten years. In return, the UK will eliminate tariffs on multiple Indian products, granting 99 percent of Indian exports tariff-free access. This enhances market opportunities, supply chain stability, and competitiveness for Indian exporters. The agreement also includes rules of origin to ensure benefits remain exclusive to businesses in both countries.

The removal of the 12 percent tariff on pharmaceutical formulations could significantly boost India's $50 billion pharma exports, especially generics, to the UK’s National Health Service. However, stricter UK regulations may raise compliance costs for smaller Indian manufacturers. Additionally, the phased elimination of the 10 percent tariff on garments over five years could help revive India’s global textile trade share, which has declined from 25 percent in 1947 to 5 percent in 2021.

India and the UK have safeguarded sensitive sectors from tariff reductions to protect vulnerable industries while advancing broader trade liberalization. Excluded items include agricultural products such as dairy, apples, cheese, eggs, and oils, alongside industrial goods like plastics, diamonds, silver, smartphones, and optical fibers.

The agreement benefits Indian professionals in the UK by extending the social security exemption period from one to three years, preventing dual contributions. It also streamlines visa procedures, easing mobility for engineers, architects, accountants, and consultants, while reducing barriers for conferences, intra-company transfers, and contracted services. Mutual recognition of professional qualifications has the potential to increase India’s IT services exports by $5 billion annually, which can crucially cater to the UK’s demand for AI and cybersecurity solutions.

While the FTA enhances exports, it also intensifies competition for Indian industries. Tariffs on UK Scotch whisky and gin will gradually drop from 150 percent to 40 percent over a span of ten years, potentially impacting domestic producers. UK automobile imports will see phased tariff reductions from over 100 percent to 10 percent, thereby lowering prices for premium brands like Jaguar Land Rover and Rolls-Royce, increasing pressure on Indian luxury carmakers. The treaty introduces a limited EV quota system, allowing the UK to sell 22,000 high-value EVs in India at a 10 percent duty, while India secures a quota for low- and mid-range EV exports to Britain, balancing trade and domestic industry protection.

The treaty allows UK firms to bid for central government procurement, excluding state and local contracts. Those with 20–50 percent local value qualify as ‘Class II’ suppliers, receiving limited preference compared to ‘Class I’ suppliers with over 50 percent domestic content—ensuring continued support for MSMEs and the “Make in India” drive. Amid global trade disruptions, this treaty offers Indian traders a chance to diversify their markets and lessen dependence on China and the USA.

As Western economies seek alternatives to China, the agreement could set a precedent for others, prompting a shift toward Indian manufacturing through bilateral pacts. Furthermore, the UK’s ageing population and tech talent gap open lucrative opportunities for Indian professionals in healthcare, education, and fintech, with the potential to create two million jobs by 2030.

However, tariff cuts could narrow India’s trade and services surplus with the UK if imports outpace exports.

India must reform its manufacturing sector, especially easing rules for SMEs and strengthening IP enforcement to stay globally competitive. The Indo-UK FTA serves as a catalyst for growth under the Viksit Bharat 2047 vision, promoting exports, tech collaboration, and resilience. But to solidify its global standing, India must fast-track FTAs with the US, EU, and ASEAN, ensuring a competitive edge in the international market.

(The author is a Chartered Accountant with a leading company in Mumbai. Views personal.)